Presenting a live 90-minute webinar with interactive Q&A Advanced Strategies for Challenging FBAR Penalties: Using Administrative Procedures Act In Defending Against Assessments WEDNESDAY, JULY 26, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Robert Horwitz, Hochman Salkin Rettig Toscher & Perez , Beverly Hills, Calif. Steven Toscher, Esq., Hochman Salkin Rettig Toscher & Perez , Beverly Hills, Calif. Anthony V. Diosdi, Moskowitz , San Francisco The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 . NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted.
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Hochman Salkin Rettig Toscher & Perez, P.C. and Moskowitz LLP, A Tax Law Firm for Strafford Advanced Strategies for Challenging FBAR Penalties: Using Administrative Procedures Act In Defending Against Assessments July 26, 2017 Hochman Salkin Moskowitz LLP Anthony V. Diosdi, Esq. Robert S. Horwitz, Esq. Steven Toscher, Esq. Rettig Toscher & A Tax Law Firm 415.394.7200 310.281.3200 310.281.3200 Perez, P.C. adiosdi@moskowitzllp.com 180 Montgomery horwitz@taxlitigator.com toscher@taxlitigator.com Taxlltigator.com Street www.moskowitzllp.com www.taxlitigator.com www.taxlitigator.com 9150 Wilshire Blvd San Francisco, CA Beverly Hills, CA 94104 90212 4
PART ONE Significance of the FBAR Penalties 5
FBAR Requirements • Overview of FBAR requirements • The rules governing FBAR filing and FBAR penalties are codified in Title 31 (Money and Finance) of the U.S. Code. • Who has legal obligation to file an FBAR defined • A “US Person”; • Had a “financial interest” in, or “signature authority” over, or “other authority” over; • One or more “financial accounts”; • Located in a “foreign country”; • Aggregate value of such amount(s) exceeded $10,000; • At any time during the calendar year. 6
Onerous Penalties for Failure to File Willful Penalties Non-willful Penalties • • The penalty is the greater of $100,000 or Shall not exceed $10,000 per violation. 50 percent of the balance in the account 31 U.S.C. Section 5321(a)(5)(B)(i). at the time of the violation. • • The Supreme Court explained that 31 U.S.C. Section 5321(a)(5)(B)(ii) “willfully” is a word of many meanings, states that no penalty shall be imposed whose construction has many if “such violation was due to meanings, and whose construction is reasonable cause” and “the amount of often dependent on the context in which the transaction or the balance in the it applies. Safeco Ins. Co. of America v. account at the time of the transaction Burr, 551 U.S. 47 (2007). was properly reported.” • The IRS always has the burden to prove • “Reasonable Cause” is not defined in the willful failure to report foreign assets. U.S. v. McBride, 908 F.Supp.2d the Bank Secrecy Act or its regulations. 1186, 1202 (D. Utah 2012). It appears the definition of reasonable • This burden applies not only in litigation, cause is similar to 26 U.S.C. Section but also in administrative proceedings. 6664(c)(1). I.R.M. 4.26.16.6.5.1.3 (Nov. 6, 2015). 7
Collection of FBAR Penalty Assessment • Since FBAR penalties are imposed under Title 31 of the U.S. Code and not the Internal Revenue Code, the assessment and collection procedures are different than for Title 26 tax penalties. • Statute of limitations to assess an FBAR penalty and liquidate into a judgment • Civil statute of limitations • 6 years from date of violation • Department of Justice (DOJ) • 2 years to sue to reduce to judgment from the later of: • Assessment date of IRS FBAR penalty OR • Date any judgment becomes final in criminal action involving the same transaction that resulted in the penalty. 8
Collection of FBAR Penalty Assessment • 31 U.S.C. Section 3711(g)(9) Available debt collection methods include: • Administrative offset; • Federal tax refund offset; • Federal salary offset; • Non-federal employee wage garnishment; • Debt referral to private collection contracts; • Debt referral to agencies operating a debt collection center; • Reporting of delinquencies to credit reporting bureaus; • Litigation or Foreclosure. • Collections triggered after failure to pay after issuance of 3708 Letter (30 days letter). • Interest will accrue from the notice date for the amounts assessed to the debtor if not paid within 30 days of 3708 Letter. 31 U.S.C. Section 3717(b). • In addition, an annual six percent delinquency penalty is assessed on FBAR penalties that remain unpaid after the assessment. 31 U.S.C. Section 3717(e)(2). 9
Collection- Administrative Offsets • Administrative offsets. 31 U.S.C. Section 3716. • Including levy on Social Security benefits. • No statute of limitations on collections for administrative offsets. 10
Timeline Regarding Collecting FBAR Penalty FBAR Penalty Assessed (Subject to Collections) 3708 Letter Satisfy Penalty (30 day Penalty Not letter) in-full Satisfied Refer Case to Refer case to DOJ BFS for (Reduce Collection. penalty to 31 U.S.C. judgment) Section 3711. 11
PART TWO Potential Application of APA to FBAR Penalty Defenses 13
Administrative Procedure Act (APA) • Definition • The APA governs the way in which administrative agencies may establish regulations. The APA also provides that federal agencies may not take final actions that are arbitrary and capricious. • Overview • A federal agency may not take final actions that are arbitrary and capricious or an abuse of discretion . • A federal agency may not engage in a prescribed rule-making or regulation process unless the public is provided with proper notice and comment . • Since FBAR penalties are imposed under Title 31 and not under the IRC, it is not subject to 26 U.S.C. Section 7421(a) • 26 U.S.C. Section 7421(a) prohibits suits brought for the purpose of restraining the assessment or collection of tax, thus making FBAR penalties susceptible to a challenge based on the APA under 5 U.S.C. Sections 701-706. • Judicial Remedies • Declaratory relief. • Judicial de novo review of assessment amount possible only if agency’s fact-finding procedures are inadequate. 5 U.S.C. Section 706(2)(F). 14
APA: Sovereign Immunity • Sovereign Immunity • Although the APA is not subject to the Anti-Injunction Act of 26 U.S.C. Section 7421(a), it is subject to a defense under sovereign immunity. • Sovereign immunity prevents suits from being brought against the government. • Sovereign immunity can be waived by the government. • Congress enacted the APA as a waiver of sovereign immunity. • Under 5 U.S.C. Section 702, “An action in a court of the United States seeking relief other than money damages… shall not be dismissed nor relief therein be denied on the ground that it is against the United States.” • This includes actions to set aside agency orders or rules or, more generally, actions for declaratory and injunctive relief in respect to some agency action or inaction. • No money damages under the APA . 15
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